When advising businesses on amending their documentation for compliance with the Australian Consumer Law (ACL)1, particular contracts, policies and other materials have required special attention primarily arising from:
- The introduction of a national unfair contracts regime.
- The new consumer guarantees regime.
- The national regime governing unsolicited consumer agreements.
This article identifies seven documents that may require attention so as to ensure compliance with the requirements of the ACL (and underlying regulations) and makes recommendations about potential pitfalls and necessary action.
Please note that this article does not identify all documentation or all concerns that could arise with that documentation under the ACL. It endeavours to underline key common issues.
Standard form contracts
As a result of the introduction of the national unfair contracts law on 1 July 2010, businesses should review all standard form contracts that are for the supply of goods, services or sale or grant of an interest in land to an "individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption". This should be done to ascertain whether or not any terms could be regarded as "unfair".
Key recommendations are set out below:
- Look out particularly for terms that reserve discretionary or unilateral rights and assess whether these terms should be varied or removed from the contract.
- Ensure that contracts are clear and well structured - all terms should be expressed in plain language, be legible, and presented clearly
- Any terms that are weighted towards the supplier should be checked to ensure that they are not disproportionate to the need to protect legitimate business interests.
- Ensure that contracts contain severance clauses, to allow any unfair term to be severed from the contract.
- Keep detailed reasons why terms were included in contracts to provide the necessary justification for the term.
- Consider incorporating outlines and acknowledgments as to why certain terms are included in the contract in pre-contract disclosure and the contract itself.
- If there is an opportunity for the consumer to negotiate contract terms, ensure any negotiations are recorded and undertaken in good faith.
- Consider whether you need to adopt the 'consumer' standard for all contracts (even if primarily contracting with other businesses) or have two different standard form contracts.
Warranties against defects
- From 1 January 2012, a "warranty against defects" (also commonly known as a "manufacturer's warranty") must be in the form and have the content prescribed by regulation.
- A "warranty against defects" is a representation (often in the form of a slip of paper contained in the packaging of products) communicated to a consumer at the time of supply of goods or services promising to repair or replace goods, rectify service or recompense the consumer if the goods or services are defective.
- The legislative intent of these prescriptive requirements is to enable consumers to understand how "warranties against defects" interact with their other rights and remedies available under the new consumer guarantees regime and understand clearly what the “warranty against defects” entitles them to.
- The ACL does not allow the operation of consumer guarantees and associated remedies contained in the ACL to be excluded by a manufacturer or supplier, except in limited circumstances. Also, it is an offence to make a false or misleading representation concerning
- The existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (including a consumer guarantee under the ACL); or a requirement to pay for a contractual right that is wholly or partly equivalent to any condition, warranty, guarantee right or remedy (including a consumer guarantee under the ACL) or one that a person has under statute.
- Accordingly, it is recommended that before 1 January 2012, warranties against defects be reviewed to ensure that they accord with the regulation. Additionally, your current warranties against defects must also be reviewed now to ensure that they sit consistently with the new consumer guarantees regime and do not wrongly convey a consumer's entitlement to other remedies that they may have under the ACL.
For the same reasons as stated in paragraph • above, any extended warranties offered to consumers must also be reviewed to ensure that they are consistent with, and do not falsely convey a customer's entitlements under, the consumer guarantees regime.
The potential difficulty with extended warranties is that often a consumer is required to pay an additional amount for the extended warranty. It is essential that the consumer is not being asked to pay for rights that they would have in any event under the consumer guarantees regime.
Accordingly, it is recommended that thought be given to whether or not "extended" remedies made available under an extended warranty are entirely additional to what a consumer would be entitled to under the ACL. For example, a customer is already entitled to recourse against a supplier of goods or services for a "reasonable" period after they have been supplied. It may be that a "reasonable" period would actually extend into an extended warranty period. To the extent it does so, there should be no requirement for a customer to pay for that extended warranty period.
Part 5-4 of the ACL sets out the circumstances in which a consumer is entitled to repairs, replacements, refunds and/or other compensation for the failure of a good or service to comply with an applicable consumer guarantee. A supplier must honour those same remedies and cannot seek to exclude their operation.
Where the good or service being provided is being supplied direct to a consumer and:
- Would be considered to be a good or service of a kind ordinarily acquired for personal, domestic or household use or consumption.
- Would be worth less than $40,0000.
- Consist of a vehicle or trailer acquired for use principally in the transport of goods on public roads,
it is recommended that refund policies (whether contained in signage in-store, printed on receipts, appearing on a website, stated orally or otherwise communicated) be reviewed to ensure that they accurately reflect a customer’s entitlements under the consumer guarantees regime. In particular, a policy should not:
- deny a customer’s right to a refund (including on sale items); or
- require a customer to take a credit note or exchange instead of a refund,
as a customer is entitled to a refund if the failure comply with a guarantee is a “major” failure under the ACL. However, a refund policy may state that no refund will be given for change of mind
Additionally, as stated above, it is an offence to misrepresent a consumer’s recourse under the consumer guarantees regime. Such conduct is also likely to constitute general “misleading or deceptive conduct” which is also prohibited by the ACL. There are accordingly significant ramifications if a refund policy is inconsistent with the law.
As discussed in the article entitled “One year in: Enforcement powers and priorities in consumer protection” following this, the ACCC recently cracked down on the use of allegedly non-compliant refund policies by a number of clothing retailers. Those retailers paid infringement notice fines and were also exposed to negative publicity as a result.
To understand more about the consumer guarantees regime, please refer to our other article entitled "Just the fact for manufacturers, distributors and retailers: consumer guarantees" at the end of this newsletter.
The changes to the CCA, effective 1 January 2011, also affect contracts generally. Our key recommendations are as follows.
- References to the Trade Practices Act in all contracts and documentation must now be to the Competition and Consumer Act 2010 (Cth).
- Trade Practices Act section references have now changed (for example, section 52 of the Trade Practices Act is now section 18 of Schedule 2 to the Competition and Consumer Act 2010 (Cth)).
- Clauses seeking to limit liability or exclude liability for certain matters should be reviewed where there is any chance that the good or service being supplied:
(a) Would be considered to be a good or service of a kind ordinarily acquired for personal, domestic or household use or consumption.
(b) Would be worth less than $40,0000; or
(c) Consist of a vehicle or trailer acquired for use principally in the transport of goods on public roads.
This is because a contract that seeks to exclude or limit the operation of consumer guarantees and associated remedies will be void, except in limited circumstances. Also, as stated above in clause •, it is an offence to misrepresent a consumer’s recourse under the consumer guarantees regime.
Unsolicited selling documentation
Door-to-door, telesales and other forms of direct selling that are uninvited by a consumer and do not occur at your business premises must comply with ACL provisions relating to “unsolicited consumer agreements” which prescribe:
- limited hours for contact with consumers;
- obligations when making contact with consumers;
- disclosure requirements before, during and after making an agreement;
- criteria for contents and form of unsolicited agreements;
- restrictions on supply during cooling-off period; and
- rights of termination during cooling-off period and for up to 6 months following commencement of agreement if the seller has not complied with the ACL requirements related to unsolicited consumer agreements.
Whilst a transitional period applies to the implementation of some aspects of the regime, the ACL and underlying regulation are prescriptive about the form and contents of direct selling documentation in certain respects. Accordingly, it is recommended that current direct selling agreements, forms, explanatory statements, welcome packs and telesales scripts be reviewed to ensure they require with the strict ACL requirements.
All promotional and advertising material
Whilst there have been significant changes to the CCA, remember that many of the provisions contained in the former Trade Practices Act live on in the ACL including prohibitions relating to:
- misleading or deceptive conduct;
- unconscionable conduct;
- false or misleading representations (although some subsections are new);
- price disclosures (although there is a new provision requiring supply at the lowest displayed price);
- bait advertising;
- unsolicited supplies;
- referral selling; and
- harassment and coercion
Ensure that all documentation is truthful and accurate so that it conveys an overall truthful impression. Tell the whole story and be mindful of silence/half-truths. Also ensure that you can substantiate claims made.